Oil prices slip while awaiting inventories report

Published 6:30 am, Wednesday, March 3, 2004

NEW YORK — High-flying oil prices eased today ahead of a U.S. government report expected to show modest falls in tight fuel inventories.

A rebound in the dollar's value spurred speculative funds to switch away some of their heavy recent buying in energy markets.

London Brent crude was down 40 cents at $32.75 a barrel, more than 60 cents below today's 12-month peak, which was the highest price since before the U.S.-led invasion of Iraq. U.S. light crude shed 24 cents to $36.42 a barrel.

Prices have surged more than $3.50 a barrel, or 12 percent, since the OPEC cartel's Feb 10 decision to cut supply quotas from April and eliminate production over existing limits.

While OPEC has yet to cut back its overproduction, speculative traders have bet heavily that its determination to head off a rebuild in U.S fuel stocks will help force up gasoline prices during peak summer demand.

U.S. government data to be released at 1530 GMT on Wednesday is expected to show a 1.5 million barrel draw in crude inventories and a 1.1 million barrel decline in gasoline stocks, a Reuters' survey of analysts forecast.

The expected stock fall was mainly due to a temporary closure of the Mississippi River following a ship collision, which disrupted crude supply to some U.S. Gulf Coast refineries.

Fresh downward pressure came from the dollar's move to 2004 highs against the euro, yen and Swiss franc, maintaining this week's recovery on rising optimism over U.S. job growth.

Near record speculative length in the market could melt into a sell-off if hedge funds decide to liquidate their long positions, moving from oil into the rising dollar, traders said.

"A strong dollar obviously helps the downside. But we would need to see Brent prices fall by one or two dollars before the funds move out," one dealer said.

Assurance from OPEC President Purnomo Yusgiantoro that members were still pumping above official limits to cool prices has also helped bring prices down from recent highs. Saudi Oil Minister Ali al-Naimi has pledged to keep world oil markets well supplied to sustain economic growth.

OPEC oil production dipped only slightly in February, mainly due to export problems from Iraq, a Reuters survey released on Tuesday showed.

Fears of disruptions to supplies from Venezuela, OPEC's third-biggest producer, eased when state oil firm PDVSA said operations were not affected by violent protests by foes of President Hugo Chavez who were demanding a referendum on his rule.

At least five people have been killed in clashes between troops and protesters, which had sparked fears of a repeat of last year's two-month strike at PDVSA that briefly shut most of the production of the world's number five oil exporter.